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FINANCIAL ACCOUNTING 2.....GDB NO 1 (START DATE : 6 MAY 2016.......END DATE : 12 MAY 2016).......MARKS 10

               Graded Discussion Board 01

                  Financial Accounting II (MGT401)

 

Learning Objective: Students will be able to apply the principles of International Accounting Standards (IAS) 24.

 

Scenario:                                                     

Creative ltd. is a maker of spare parts for automobiles. Company executes its business through a business model that has functioned for quite a long time and has made the organization a successful business, which is ranked among top 20 business enterprises of its field by the business community. Creative ltd. has confidence in working with trustworthy and responsible vendors/dealers furthermore; it offers its products only to the enterprises that it can either control or practice ‘significant influence’ over. The details regarding business dealings are as follows:

  • Creative ltd. buys the raw material from Decent ltd, that is a reliable supplier. Because of the facts that Decent ltd. has always provided the required material of higher standards since last 5 years, that’s why Creative ltd. has never purchased anything from any other supplier. So, it can be said that Decent ltd is economically dependent on Creative ltd.
  • Creative ltd. sells 60% of its production to an enterprise that is owned by a director of Creative ltd and the remaining portion of the output to a company that is its "associate" as Creative ltd. possesses 25% of the share capital of that organization.
  • Creative ltd. stores its stock in a storeroom that is taken on lease from the spouse of its director. The lease rentals are decided at an arm’s length price.
  • Creative ltd. has granted a loan without interest to the company XYZ ltd. that is owned by the CEO of Creative ltd. the purpose of loan is to buy the delivery vans which the XYZ ltd. is utilizing for delivering the goods from the distribution center of the supplier to the warehouse utilized by Creative ltd. for storing its stock.                         

Requirement: As per IAS 24, which of the above mentioned transactions would be disclosed as related party transactions? Also justify your answer by giving valid reasons.  

 

 

Important Instructions:

1. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

2. Obnoxious or ignoble answer should be strictly avoided.

3. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.

For Detailed Instructions please see the GDB Announcement

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Replies to This Discussion

I think 2nd and 4th transactions would b treated as related party transaction.

yes right

Please made correction of my ans:-
In my point of view 2nd and 3rd point is related to IAS 24 following reasons
2. Creative ltd. sells 60% of its production to an enterprise that is owned by a director of Creative ltd and the remaining portion of the output to a company that is its "associate" as Creative ltd. possesses 25% of the share capital of that organization.

“The disclosure required by the paragraph 18 shell be made seprately for the follwing categories:
(a) The Parent
(b) Entities with the joint control or significant influence over the entity
(c) Subsidiaries
(d) Associates
(e) Joint venture in which the entity is aventurer
(f) Key management personel of the entity or its parent
(g) Other related parties. “

3. Creative ltd. stores its stock in a storeroom that is taken on lease from the spouse of its director. The lease rentals are decided at an arm’s length price.
A related party is a person or entity that is related to the entity that is preparing its financial statements (in this
Standard referred to as the ‘reporting entity’).
(a) A person or a close member of that person’s family is related to a reporting entity if that person:
(i) has control or joint control over the reporting entity;
(ii) has significant influence over the reporting entity; or
(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting
entity.
Close members of the family of a person are those family members who may be expected to influence, or be
influenced by, that person in their dealings with the entity and include:
(a) that person’s children and spouse or domestic partner;
(b) children of that person’s spouse or domestic partner; and
(c) dependants of that person or that person’s spouse or domestic partner.

Asad i also think k point no. 2 and 3 he is transaction ko refer kr rhy hain... but verification kese ho gi???? yahan to koi posting he nhi kr rha...

Yeh tamam  transactions related party say relate kar rahi hain .....inn sub ka seprately  batana hai ..valid reason k saath

I THINK ZAHID IS RIGHT

but explain kya karna ha ? book me tu surf point diye han or almost her point match kar raha ha , lakin is ko explain kaise karma ha ?????

rana .....sub ka seprately alida alida bta doo k yeh iss wajah say relate kar raha hai ...aur dosra iss wajah say relate kar raha hai ...yeh tamam transactions related party say relate kar rahi hain

bohat confusing ha

rana sir ab to confusing ni hy simply point out krny hy k kis base pe ap usy related transaction keh rahy 

best of luck

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